U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

89–813PDF 2014

A NEW ERA OF U.S.–CHINA RELATIONS?

HEARING

BEFORE THE

SUBCOMMITTEE ON ASIA AND THE PACIFIC

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS

SECOND SESSION

SEPTEMBER 17, 2014

Serial No. 113–216

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

ADAM KINZINGER, Illinois 

MO BROOKS, Alabama 

TOM COTTON, Arkansas 

PAUL COOK, California 

GEORGE HOLDING, North Carolina 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

STEVE STOCKMAN, Texas 

RON DESANTIS, Florida 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

SEAN DUFFY, Wisconsin 

CURT CLAWSON, Florida 

ELIOT L. ENGEL, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

JUAN VARGAS, California 

BRADLEY S. SCHNEIDER, Illinois 

JOSEPH P. KENNEDY III, Massachusetts 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON ASIA AND THE PACIFIC

STEVE CHABOT, Ohio, Chairman 

DANA ROHRABACHER, California 

MATT SALMON, Arizona 

MO BROOKS, Alabama 

GEORGE HOLDING, North Carolina 

SCOTT PERRY, Pennsylvania 

DOUG COLLINS, Georgia 

CURT CLAWSON, Florida 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

AMI BERA, California 

TULSI GABBARD, Hawaii 

BRAD SHERMAN, California 

GERALD E. CONNOLLY, Virginia 

WILLIAM KEATING, Massachusetts 

(III)

C O N T E N T S 

Page

WITNESSES 

Mr. Christopher K. Johnson, senior adviser and Freeman Chair in China 

Studies, Center for Strategic and International Studies .................................. 6

Mr. Gordon Chang, author ...................................................................................... 15

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Mr. Christopher K. Johnson: Prepared statement ................................................ 9

Mr. Gordon Chang: Prepared statement ............................................................... 17

APPENDIX 

Hearing notice .......................................................................................................... 42

Hearing minutes ...................................................................................................... 43

The Honorable Gerald E. Connolly, a Representative in Congress from the 

Commonwealth of Virginia: Prepared statement .............................................. 44

(1)

A NEW ERA OF U.S.–CHINA RELATIONS? 

WEDNESDAY, SEPTEMBER 17, 2014

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ASIA AND THE PACIFIC,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The committee met, pursuant to notice, at 2:30 p.m., in room 

2172 Rayburn House Office Building, Hon. Steve Chabot (chairman 

of the subcommittee) presiding. 

Mr. CHABOT. Good afternoon, and welcome to this afternoon’s 

subcommittee hearing. I want to thank our distinguished witnesses 

for being here as we examine a critical relationship that is becoming increasingly challenging and unfortunately confrontational—

and one that surely deserves more attention. 

The nature of the United States’ relationship with the People’s 

Republic of China has arguably entered a new era. Since President 

Xi Jinping assumed the leadership role in China, U.S.-China affairs have steadily undergone a fundamental transformation. In 

this new era, the PRC is more assertive and, indeed, aggressive on 

an entire range of issues covering the political, security, and socioeconomic spectrums. 

Today, we hope to learn more about China’s new leadership team 

and discuss what we can do as a nation to ensure that America’s 

interests are best represented overseas. 

I believe that the U.S.-China relationship is one of our most important given what is at stake. And when we discuss what exactly 

is at stake—such as peace and security across the Taiwan Strait 

and freedom of navigation and movement in the East China and 

South China Seas—we see that not enough attention is being given 

to this critical relationship. 

Just a few months ago, the debate focused on whether the administration’s ‘‘pivot to Asia’’ was adequately resourced. Today, I 

believe that this ‘‘pivot’’ is stuttering. When it comes to the AsiaPacific region, the conversation is focused on China, and this includes China’s aggressive foray into the South China Seas. It’s 

clear the administration is struggling to find a way to better direct 

America’s resources toward the Asia-Pacific and find a way to manage the growth of maritime territorial disputes. As a result, with 

this void, we see that China is shifting its assertiveness in the security arena and is now focusing it on American businesses operating in that country. 

According to a recent article in the New York Times, ‘‘foreign 

companies in a range of industries including automobiles, techVerDate 0ct 09 2002 16:01 Nov 05, 2014 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\WORK\_AP\091714\89813 SHIRL
2

nology, pharmaceuticals and food packaging have faced increased 

scrutiny including raids and allegations of unfair practices.’’ The 

article goes on to say that the heightened attention against foreign 

companies—including many American firms—comes at a time 

when Beijing is looking for ways to help its homegrown industries. 

I find this behavior particularly troubling given that it violates 

China’s own commitments to the World Trade Organization. 

China’s increased level of enforcement activity comes from the 

implementation of its Antimonopoly Law, which was drafted over 

a period of 10 years in consultation with authorities in the U.S. 

Government and the European Union. The law even draws from 

elements of both U.S. and EU competition laws. But, now, it’s 

being used to target U.S. and EU companies. During the U.S.-

China Security and Economic Dialogue held this past July, China 

committed to using its monopoly laws to promote consumer welfare 

and not its domestic companies or industries. This is not what we 

are seeing happen. 

China’s National Development and Reform Commission, the organization responsible for reviewing monopoly activities, abuse of 

dominance, and abuse of administrative power involving pricing, 

asserts that foreign companies only account for 10 percent of 

antimonopoly cases. However, this can’t be verified and the situation seems anything but fair, objective, transparent, or nondiscriminatory. 

Earlier this month, the U.S.-China Business Council reported 

that 86 percent of its member companies are concerned about China’s evolving antimonopoly regime. Among the many reasons are 

broader concerns about how China will use this law to protect domestic industry, how it will affect the value of intellectual property, 

and whether it will be used to force lower prices rather than let 

the market decide. As a result, in addition to already growing concerns about China cyberhacking offensive, warming relations with 

Russia, and aggressive incursion upon the territories claimed by 

neighboring nations, the implications of China’s antimonopoly investigations could be quite serious. 

In my congressional district in southwestern, Ohio which includes the city of Cincinnati, a significant number of businesses 

count on the Chinese market for an important part of their annual 

sales. Small businesses and large businesses alike, exports to 

China have helped many firms grow and prosper—and hire American workers. However, as reports about China’s antimonopoly investigations mount, so do worries about the unfair treatment of 

U.S. businesses in that country. 

Looking ahead, it’s vital that we gain a better understanding of 

the Chinese leadership, and its political, security, and socioeconomic goals. It’s also critical for us to determine a way forward 

for effectively engaging with various stakeholders in China so that 

the U.S. businesses have a clearer understanding about what this 

means for their future activities in China. What is at stake in this 

new era of U.S.-China relations is extremely important and now is 

the time to give it the attention it deserves. I look forward to the 

testimonies of the witnesses here this afternoon, and I would now 

like to recognize the ranking member of this subcommittee, Eni 

Faleomavaega from American Samoa. 

3

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. And I want to 

thank you for holding today’s hearing on U.S.-China relations. This 

is an important opportunity for our subcommittee to review and 

evaluate our relationship with China as we move forward in the 

coming years. 

I especially want to thank my good friend and dear colleague, the 

congressman from California, for all these years that we have been 

butting heads too, and deeply enjoyed his input and understanding 

of the issues affecting the Asia-Pacific region. And I also personally 

welcome Mr. Johnson and Mr. Chang as our witnesses this morning. 

As China’s economy continues to rise and the U.S. economy stagnates, there is no doubt that China will overtake the U.S. as the 

world’s largest economy soon. China remains the largest manufacturer, the largest trading economy, and also holds the largest foreign exchange reserves in the world. 

China’s economic growth is also driving the demand for energy 

for a population of almost 1.4 billion people. This is a direct impact 

on world energy markets. China will likely be the world’s largest 

importer of oil, and is heavily relying on other countries to provide 

long term energy resources, like natural gas and oil pipelines from 

Russia and Central Asia as well as the influx of Chinese investments for steady oil supply from Africa. 

A greater concern for economic and strategic security is the significant increase in spending by China to beef up its military and 

develop more high tech weapons. With the expansion of China’s 

naval and improvements in its defense and missile capabilities, 

this buildup may be a direct threat to countries like Japan, Vietnam, the Philippines, and others which are engaged in territorial 

disputes with China in the South China Sea and East China Seas. 

Although military ties between the U.S. and China have strengthened and engagement has increased in the past few years, the 

United States is pivoting to Asia as a counter. 

Are we too late, Mr. Chairman? For years I have been critical of 

U.S. foreign policy toward the Asia-Pacific region, because for too 

long the United States has neglected a part of the world where two 

thirds of the world’s population resides and which includes, according to the United States Pacific Command, seven of the world’s ten 

largest standing militaries, five of the world’s declared nuclear nations, two of three largest economies, and the largest democracy, 

the world’s busiest international sea lanes and nine of the ten largest ports, all in the Asia-Pacific region. 

So while I appreciate the need for the United States to focus on 

Europe and the Middle East, given the complexities in those regions I am disappointed that the United States has failed to devote 

the same time, attention and resources to the Asia-Pacific region 

where we are also faced with unique and complex challenges that 

also seriously affect U.S. security and stability. 

For your information, Mr. Chairman, many of American Samoa’s 

sons and daughters as well as military men and women from your 

district proudly serve in the U.S. Pacific Command to protect and 

defend the territory of the United States, its people and its interest 

in the Asia-Pacific region and they deserve more than a pivot as 

do Pacific Island nations. 

4

Pacific Island nations supported U.S. interest during World War 

II, but when times got good for us we neglect them also. Now 

China is providing hundreds of millions of dollars in aid to help 

their struggling economies and improve their quality of life. 

Many Pacific Island nations including American Samoa’s closest 

neighbor, the Independent State of Samoa, is accepting China’s assistance. Many Island nations’ leaders have no choice but to work 

and strengthen their partnerships with China, and I don’t blame 

them given that the United States has been an undependable partner. 

It is very unfortunate, Mr. Chairman, that the United States, 

Australia and New Zealand are just now realizing how important 

the Asia-Pacific region is. But as the Pentagon finally shifts its posture for rebalancing in the Asia-Pacific region, it is my sincere hope 

that the administration will not only take a look at engaging China 

and improving bilateral relations that would be beneficial to both 

countries, but I also hope that we will seriously go about in 

strengthening our relationships with our allies and partners 

throughout the Asia-Pacific region. I also hope we will address the 

concerns of our U.S. business community overseas. 

With that, Mr. Chairman, again I thank you for your leadership 

and for taking this time to hold this hearing, and again I welcome 

our witnesses this morning. Thank you. 

Mr. CHABOT. Thank you very much. The gentleman yields back. 

And I would now like to recognize the gentleman from California, 

Mr. Rohrabacher, who also is the chairman of the Subcommittee on 

Europe, Eurasia, and Emerging Threats, for the purpose of making 

an opening statement. 

Mr. ROHRABACHER. Thank you very much, and I will treat this 

as not a new era but an emerging threat. 

I want to thank the chairman and thank my good friend, Eni 

Faleomavaega. And it took me a long, long time to learn how to 

pronounce that name, but it was worth it because Eni has been one 

of the great, great members of this body and who has won the 

hearts and respect of people on both sides of the aisle. So we are 

very happy to celebrate your leadership as well, Eni. 

Today we are of course looking at China. And let me just give 

this challenge to the leadership in China who I hope are listening. 

They usually do pay attention to hearings like this. If you want us 

to believe that you are reforming, do something that you can do 

that will indicate that you are taking a major step in the right direction. 

And that would be, I would suggest, that you declare that it is 

no longer the policy of the Communist Party of China to discourage 

the worship of God and that you now respect the freedom of people 

to worship God in their own way. 

That is a very doable thing for them. It would not in any way 

put them in harm’s way. If they can’t do that they can’t reform 

anyway politically and socially in that country. We have Falun 

Gong who are still being arrested in great numbers and murdered 

in prison, their organs sold; Muslims who are being repressed; Buddhist monasteries in Tibet that are still suffering, and Buddhist 

priests that are treated so badly they are committing suicide, burning themselves to death. And then of course we have the control 

5

of Christian churches so that they have strict controls of what is 

going on. 

This is something they can do. If they want to—look, we know 

there are no opposition parties. There is no freedom of press. There 

is no freedom of demonstrations. There is no labor unions. There 

is no independent court system in China for this new day. But if 

they want to show us that they are going in the right direction, 

they can’t cure all of that or maybe even one of those might be too 

much, but at least walk away from this idea that you have got to 

repress people when they are worshiping God. And that is the challenge of today. 

I am interested in hearing the witnesses, and especially in terms 

of the military actions that China has taken, the rogue China that 

now threatens the territorial claims against Japan, the Philippines, 

Vietnam and India. Thank you very much, Mr. Chairman. 

Mr. CHABOT. Thank you very much, Mr. Chairman. And I have 

been advised that we have visitors with us today from the American Chamber of Commerce in Shanghai, and the subcommittee 

would like to welcome you; we hope that your visit is productive. 

And if you would like to stand and be recognized we would encourage you to do so. [Applause.] 

Thank you for spending some time with us. And I would now like 

to introduce our distinguished panel here this afternoon before we 

hear their testimony. 

First, Mr. Christopher Johnson is a senior adviser and holds the 

Freeman chair in China Studies at the Center for Strategic and 

International Studies. Previously, Mr. Johnson worked as a senior 

China analyst at the CIA. Mr. Johnson served as an intelligence 

liaison to two Secretaries of State on worldwide security issues, 

and in 2011 was awarded the U.S. Department of State’s Superior 

Honor Award for outstanding support to the Secretary. He has also 

served abroad in Southeast Asia. Throughout his career, Mr. Johnson has focused on China’s political and economic transformation, 

the development of its military, and its resurgence as a regional 

and global power. He has frequently advised senior U.S. policymakers and foreign officials on Chinese leadership and Beijing’s 

foreign and security policies. Mr. Johnson graduated summa cum 

laude with bachelor’s degrees in history and political science from 

the University of California at San Diego and received his M.A. in 

security policy studies from the George Washington University. We 

welcome you this afternoon, Mr. Johnson. 

I would next like to introduce Gordon Chang. Mr. Chang is the 

author of the ‘‘Coming Collapse of China’’ and ‘‘Nuclear Showdown: 

North Korea Takes On the World,’’ which focuses on nuclear proliferation and the North Korean crisis. He is a regular contributor 

at Forbes.com and blogs to the World Affairs Journal. Mr. Chang 

has worked in China and Hong Kong and most recently in Shanghai as counsel to the American law firm Paul Weiss, and earlier 

in Hong Kong as partner in the international law firm Baker and 

McKenzie. His writings have appeared in numerous publications 

and he is a frequent speaker at universities, think tanks, and private institutions. Mr. Chang has briefed several government agencies and has testified before the House Committee on Foreign Affairs and the U.S.-China Economic and Security Review CommisVerDate 0ct 09 2002 16:01 Nov 05, 2014 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\WORK\_AP\091714\89813 SHIRL
6

sion. He has also served two terms as a trustee of Cornell University. We welcome you here this afternoon, Mr. Chang. 

I am sure both witnesses are familiar with the 5-minute rule. We 

would ask that you keep your testimony within that time. There 

should be a yellow light that comes on and lets you know when you 

have 1 minute to wrap up; and the red light will come on. Then 

we would appreciate it if you would conclude your testimony as 

close to that time as possible. 

And we will begin with you, Mr. Johnson. You are recognized for 

5 minutes. 

STATEMENT OF MR. CHRISTOPHER K. JOHNSON, SENIOR ADVISER AND FREEMAN CHAIR IN CHINA STUDIES, CENTER 

FOR STRATEGIC AND INTERNATIONAL STUDIES 

Mr. JOHNSON. Thank you very much, Mr. Chairman. 

Distinguished members of the subcommittee, good afternoon, and 

thank you for this opportunity to come before you today. I am especially pleased to know that as was mentioned in some of your opening statements that despite the complex challenges the United 

States currently is facing in other parts of the world, there is an 

eagerness among the members to discuss these important issues 

with regard to the future trajectory of U.S.-China ties under the 

leadership of its new President, President Xi Jinping. 

Although these other challenges that we are facing represent 

issues of concern and even a clear and present danger to U.S. interests and the lives of our citizens, I would submit that they ultimately should be viewed as near term tactical issues to be skillfully 

managed by U.S. policymakers. By contrast, getting our relationship with China right should represent the fundamental strategic 

preoccupation of U.S. foreign policy thinkers in the 21st century. 

So let me spend just a few minutes sketching out for you my assessment of the state-of-play in the relationship as well as some of 

the specific issues that I have been asked by the subcommittee to 

address in this testimony. 

In terms of the relationship, the bilateral relationship, relations 

between Washington and Beijing while generally stable are certainly under stress. Chinese leaders and officials are at best confused by what they see as a lack of consistency from the Obama 

administration with regard to its policy toward China, and at worst 

convinced that the United States is bent on containing China’s rise. 

For their part, U.S. policymakers are deeply concerned by Beijing’s exceptionally forthright assertion of its sovereignty claims to 

disputed territories in the East and South China Seas, as well as 

the new Chinese leadership’s seemingly more active foreign policy 

approach in regions outside China’s traditional areas of foreign policy interest and focus as China reasserts itself as a global power. 

Add to these persistent U.S. concerns with regard to Chinese 

cyberespionage and the litany of thorny economic issues between 

our two countries and it is easy to see why the relationship appears 

more tense than it has in some time. Moreover, senior officials in 

both capitals bemoan the lack of meaningful strategic dialogue between the two leaderships. 

The practical implications of this absence of effective senior level 

dialogue is the absence of strategic trust between the two leaderVerDate 0ct 09 2002 16:01 Nov 05, 2014 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\WORK\_AP\091714\89813 SHIRL
7

ships and the resultant drift in bilateral ties brought on by policy 

stagnation. Still, in my assessment none of these trends is irreversible. It simply requires leadership and a commitment on both sides 

to building a truly new style of relations between the two nations 

going forward. 

Finally, the traditional conceptions and cadence of the relationship still are adjusting to the phenomenon that is the leadership 

of Xi Jinping. While certainly no strong man within the Chinese 

system, Xi is without question the most powerful Chinese leader to 

emerge in several decades. 

Although it is far too early in his tenure to be able to predict 

with any certainty the precise ramifications of his particular brand 

of foreign policy making, one thing is perfectly clear. Xi is not responding to the traditional messaging and cueing that being employed by the United States on issues such as tensions in the East 

and South China Seas, or at least he is not doing so in a way that 

the U.S. Government would like him to. 

This reality does not necessarily demand a specific set of policy 

responses from the United States, but it should give U.S. policymakers pause and a desire to reflect on whether, and how, U.S. actions may need to be recalibrated to deal with this fundamentally 

different approach from the Chinese leader. 

Turning to the prospects for economic reform inside China, it is 

fair to say that the reform progress has struggled in the first half 

of this year. And this can be ascribed to several factors including 

a recognition on the part of Xi Jinping and his economic team that 

the scale of the challenge is much greater and the resistance that 

they face is far more entrenched than they might earlier have assessed. 

Another factor is the pervasive fear that has been engendered 

among working level officialdom as a result of Xi Jinping’s 

anticorruption drive. Officials have been in a near state of paralysis for fear that they may somehow be swept up in the campaign. 

Against this backdrop, few in the working level bureaucracy have 

been inclined to offer up radical reform proposals. 

Finally, the economy’s sluggish performance also has acted as a 

drag on reform progress. This will provide all the more incentive 

for the government to adopt additional stimulus measures for the 

final quarter of the year in order to meet the leadership’s ambitious 

annual growth target of 7.5 percent. 

Such pressures and practices risk crowding out the room for reform headway as officials, especially at the local level, singlemindedly batten down the hatches to be able to weather the storm 

that they are facing. 

Still, there are reasons to believe that prospects for reform 

progress at the end of this year and going into 2015 may be brightening. For example, it will be important for the leadership to set 

the right tone on the pace of reform before the Communist Party’s 

economic planners begin focusing in earnest on drafting the 13th 

Five-Year Plan which will be approved at a fall plenum next year. 

And finally, let me turn to this issue of market conditions facing 

foreign companies operating in China. The environment confronting foreign companies doing business in China has changed 

substantially in the wake of the 2008 global financial crisis. In this 

8

year’s business confidence study conducted by AmCham China, for 

example, 40 percent of respondents perceive that foreign companies 

are being singled out in the pricing and antitrust investigations 

that now are touching a very wide array of industries operating inside the country. 

There is no one clear answer concerning what may be driving 

these pressure tactics, though the pattern that emerges from a 

close look at the investigations being conducted suggests that they 

are motivated by some combination of an understandable desire to 

bring prices down, traditional rent-seeking behavior and some element of bureaucratic competition between the Chinese Government 

entities charged with overseeing the investigations. 

Still, these explanations though certainly part of the puzzle are 

dwarfed by a single, overarching priority of the regime, the preservation and strengthening of China’s unique state capitalist system. 

In fact, the regulatory agencies appear to be designing a template 

with these investigations with potential applicability across a wide 

variety of industries. 

The specific measures taken will vary on a case-by-case basis, 

but it is likely to involve a combination of several techniques including the threat of price investigations to win concessions, the 

use of investigations often in tandem with well coordinated exposes 

by state-controlled media to mar the reputational standing of the 

targeted firm, and the provision of subsidies and the promotion of 

consolidation of domestic producers in the targeted industry to 

boost the competitiveness of designated so-called national champions. 

Going forward, we can expect that China will continue to use all 

the tools at its disposal including selective enforcement of rules, 

provision of subsidies, and technology transfer requirements to create an environment that unduly favors the development of its domestic champions. 

And with that I will cease there and yield back to the chair. 

Thank you. 

[The prepared statement of Mr. Johnson follows:]

9


89813a-1.eps
10


89813a-2.eps
11


89813a-3.eps
12


89813a-4.eps
13


89813a-5.eps
14


89813a-6.eps
15

Mr. CHABOT. Thank you very much. 

Mr. Chang, you are recognized for 5 minutes. 

STATEMENT OF MR. GORDON CHANG, AUTHOR 

Mr. CHANG. Chairman Chabot, Ranking Member Faleomavaega—and I hope I pronounced that correctly and I apologize if I 

didn’t——

Mr. FALEOMAVAEGA. You said it just right, John Wayne. 

Mr. CHANG [continuing]. And distinguished members of the committee, it is a privilege for me to appear before you today. 

Mr. CHABOT. Just for the record, you mispronounced my name, 

but that is okay. 

Mr. CHANG. I apologize. 

Mr. CHABOT. It is Chabot, like in S–H, even though it is C–H, 

but everybody mispronounces it, so there you go. So nobody can 

win around here, Eni. 

Mr. CHANG. It is a privilege for me to appear before you today 

and I thank you for this opportunity. My testimony focuses on the 

highly discriminatory antimonopoly enforcement against foreign 

companies in China, and there are three reasons why we need to 

be concerned. 

First, China’s obviously unfair application of its laws in this area 

is illustrative of common themes of foreign business in China. Second, this campaign complicates already deteriorating China-U.S. 

relations. And finally, the fundamental reason that Beijing engages 

in this campaign suggests that relations between China and the 

U.S. over the long term will remain troubled. And I will direct my 

testimony to the last point. 

There has always been some hostility in China toward foreign 

business, but new ruler Xi Jinping has taken it to a new level. So, 

for instance, in July of last year, the National Development and 

Reform Commission, which is one of three of China’s competition 

regulators, forced these companies, about 30 of them, into a room 

for 2 days and wanted them to write self-criticisms. 

Since then, the campaign against American companies has been 

unrelenting. Microsoft is the current target, but QualComm could 

be wounded, perhaps seriously, because China is targeting its most 

important source of revenue. And Time Magazine, in July, asked, 

is no foreign brand safe in China? And unfortunately the answer 

is, no brand is safe. And the question we need to ask is why? 

Well, many say that this is just a squabble over market share 

with increasingly powerful state enterprises wanting to take business away from foreign companies. Now of course there is more to 

it than that. The campaign against foreign business almost certainly is directed from the top of the Chinese political system, the 

seven-member Politburo Standing Committee of the Communist 

Party, because nothing this important in China could go on for so 

long unless it had approval from the top of the system. 

The campaign unfortunately is a frontal attack on foreign business and it brings to mind the xenophobia of the Maoist area because Xi Jinping has been conducting a series of Maoist inspired 

rectification and mass line campaigns since he took over as China’s 

leader in November 2012. Now the use of Cultural Revolution style 

16

methods against multinationals suggests that this Maoist rhetoric 

is actually starting to affect Chinese governance. 

Now Chinese leaders are not acting pragmatically right now, 

that is because of the nature of the Chinese political system. And 

despite all the reform and progress that we have seen today, China 

is still driven by the need to seek to, first and foremost, legitimize 

the Communist Party. Xi Jinping, I believe, is trying to legitimize 

the Party not only by attacking foreigners, but also he is attacking 

foreigners to help him consolidate what I believe is a shaky political position at home. 

So political considerations are driving the Chinese leaders to go 

after us, and in all likelihood I believe that this campaign will intensify at least in the long term. The fault is in the nature of the 

Chinese political system which no Chinese leader is prepared to 

change. And in this highly charged political environment, it is not 

likely that China can maintain good relations with its neighbors, 

with the international community, with the United States. It is 

clear that considering everything that Xi Jinping will not stop this 

campaign until the U.S. Government impose costs on China that 

are greater than the benefits that China gets from discriminating 

against U.S. companies. 

With China’s growing reliance on exports, Washington has the leverage to stop China in its tracks. For instance, last year, China’s 

overall merchandise trade surplus against the United States which 

was a record $318.7 billion was a stunning 122.7 percent of China’s 

overall surplus. We can find other locations to manufacture goods, 

and in fact that process is happening already. But China cannot replace the U.S. market. 

We can protect our companies by limiting China’s access to our 

market through special tariffs and other mechanisms but it is clear 

that we have to do something. Our companies and our workers are 

already bleeding. Thank you. 

[The prepared statement of Mr. Chang follows:]

17


89813b-1.eps
18


89813b-2.eps
19


89813b-3.eps
20


89813b-4.eps
21


89813b-5.eps
22


89813b-6.eps
23

Mr. CHABOT. Thank you very much. Really excellent testimony. 

We were both just commenting on that. Very, very good. I will recognize myself for the purpose of asking questions for 5 minutes. 

Let me begin with you, Mr. Johnson. Since President Xi assumed 

power, it seems that we have seen a discernible change in China’s 

behavior. It is more aggressive, more risk oriented and it seems 

pretty much impervious to U.S. pressure. As today’s hearing title 

suggests, it seems we are entering a new era in U.S.-China relations. First, would you agree? And second, how can the administration recalibrate its strategy to more effectively deal with China’s 

fundamentally different approach to foreign and economic policies? 

Mr. JOHNSON. Thank you, Mr. Chairman. It is my perception 

that indeed we are entering a fundamentally different period under 

Xi Jinping’s leadership with regard to his approach to Sino-U.S. relations but also to China’s foreign policy at large, and I think there 

are several reasons for that. 

The first is that unlike his most immediate predecessor, Hu 

Jintao, Xi Jinping is a very confident leader, someone who does 

command the system, has a deep political network that runs 

throughout the system, and has very strong views about how he 

thinks about China’s place in the world. It was very telling, for example, when he was first revealed as the new leader of China. In 

his opening speech, which was very brief, he put a lot of emphasis 

on these concepts of the Chinese dream and the great rejuvenation 

of the Chinese people and China as a nation. And I think we see 

this stream running through his foreign policy approach. 

With regard to the U.S., I think the fundamental thing to understand in terms of how Xi Jinping approaches the relationship is 

that unlike his two predecessors who arguably spent between 80 

and 90 percent of their foreign policy energy, or bandwidth, if you 

will, focused on Sino-U.S. relations whether those relations were 

good, bad or indifferent. 

Xi Jinping does not operate that way. His view is that he does 

not, of course he is not seeking to sort of diminish the status of 

U.S.-China relations, but he is not as solicitous or desirous of the 

relationship as his predecessors have been. And I think we have 

seen that time and again. 

So for as just one example, you had the Sunnylands meeting between our two leaders. Things seemed very solid in that meeting 

and a good opportunity for the two Presidents to be able to get to 

know each other and to think about how we might indeed go 

through this new style of major country relations. But since then 

we have seen this drift come in and traditional mechanisms like 

the Strategic and Economic Dialogue between our two countries, 

which in my assessment has become a fairly useless entity, we are 

not connecting on this level. And I think it is because when President Xi looks at President Obama he sees a leader who unlike himself is not confident, is not control of his own system, is not reliable. 

And in the long management of U.S.-China relations, the most 

important thing to the Chinese side is consistency. They will take 

a difficult position from the United States when necessary if they 

know that the leader is consistent, and they have real questions 

about the consistency in President Obama’s approach. 

24

In terms of his broader foreign policy strategy and the things you 

mentioned with regard to his approach to the neighbors, what we 

see, I think, is a fundamental rejection, if you will, by Xi Jinping 

of the longstanding foreign policy dictum stated by Deng Xiaoping, 

which is that China should bide its time, keep a low profile, never 

take the lead internationally. 

It was very telling to me that when the Foreign Minister Wang 

Yi gave his first press conference in the spring at their national 

legislative session, when asked by the CCTV reporter in the audience, so obviously a planted question, how would you describe the 

success of China’s foreign policy under the new leadership in the 

first year in office, he said, in a word, active, which tells us a lot. 

Because 35 years ago, no senior Chinese official would have described their foreign policy as active. 

So how should the U.S. respond to——

Mr. CHABOT. Can I cut you off here? 

Mr. JOHNSON. Sure. Yes. 

Mr. CHABOT. Because I am almost out of time and I think Mr. 

Chang should respond to that question as well for a minute or two. 

Mr. CHANG. I think that when Xi Jinping looks at Obama and 

Obama looks at Xi Jinping, he must think that the Chinese leader 

himself is unreliable, and the problem is of distress in the political 

system. June 26, Politburo meeting, Xi Jinping admits that his signature campaign against corruption, which is really just a political 

purge, was stalemated. And then he talked in melodramatic terms 

about his own death. 

Well, there have a been a number of coup rumors over the last 

3 years, some of very recent vintage. We don’t know a lot of what 

is going on, but we can see that there are things which are not consistent with a stable political system in China. So that I think is 

going to be driving U.S.-China relations. 

Mr. CHABOT. Okay, thank you very much. My time has expired, 

and I will recognize the ranking member, Mr. Faleomavaega. 

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. To counter the 

U.S. pivot to Asia, China is aggressively pushing for free trade 

agreements within the Asia-Pacific region which include South 

Korea and Japan, and looking somewhat of a maritime Silk Road, 

if you will, it will also create free trade agreements with Southeast 

Asian countries. 

I would like to ask both gentlemen of what significant impact 

will this have on the United States especially within the administration’s ongoing efforts with the Trans-Pacific Partnership initiative? 

Mr. CHANG. Obviously I think there is going to be competition 

between the United States and China. China’s trade with the region certainly has grown dramatically with all of its neighbors, but 

I think that to a certain extent we are seeing troubles in the Chinese economy itself. It is not growing at the 7.5 percent that Beijing claims. It is probably closer to 1 or 2 percent. 

And I think that we are going to see a decrease and a decline 

in Chinese trade with its neighbors despite all of these free trade 

agreements. The Trans-Pacific Partnership concept is very important for the United States because when we talk about the pivot 

we often think about military means, but really the most important 

25

part of the pivot is the Trans-Pacific Partnership because that will 

be there for generations. 

Mr. FALEOMAVAEGA. Mr. Johnson? 

Mr. JOHNSON. I would just add briefly to that by saying that the 

TPP really is the fulcrum of the rebalance in the region. And in the 

Asia-Pacific region, economics is security. That is how the countries 

in the region view it. And so without TPP there is no economic 

counterweight to what China has been doing, and then this often 

will end up driving some of their behavior toward the Philippines, 

toward Vietnam. 

I think the assessment sometimes in Beijing is, why shouldn’t be 

assertive with this when ultimately these countries will have to 

knuckle under because of their economic dependence on China? 

Likewise, I think it is the best way that we can signal to the region 

that there is truth, there is action behind our rhetoric with regard 

to our statements about being in the region for the long term. 

Mr. FALEOMAVAEGA. There are at least 11 independent Pacific Islands nations, each have a vote in the United Nations. It is no secret that China, in 2009 alone, gave over $200 million in aid to 

these Pacific Island countries. Is there a connection between the 

U.N. votes and the increased aid, and, if so, does this pose a security threat to our interests, Australia, as well as New Zealand? 

Mr. CHANG. I believe there are 14 U.N. votes in the Pacific, and 

this is, I think, one of the important things for China. Clearly it 

was important for China’s initiatives toward Africa and Latin 

America. And to the extent that the U.N. is relevant and that 

changes day by day, then of course this is going to be important 

because the U.S. will be outvoted in the General Assembly time 

after time unless we have much better relations with countries in 

the Pacific. 

And one important thing on that is that China’s relations, economic relations, are not always to the benefit of those islands and 

those nations. We need to have better trade. This is something that 

we can really win. 

Mr. FALEOMAVAEGA. Mr. Johnson? 

Mr. JOHNSON. Yes, I would agree with that and simply add that 

this is another area, while not affecting those islands where TPP 

is so important in terms of getting a U.S. style standard involved 

in a lot of these free trade agreements, because what we see with 

the Chinese is a lot of direct buying of influence with these countries through economic projects and so on. 

Mr. FALEOMAVAEGA. I don’t have the exact geography of the situation in the Pacific region, but I know that the compact of these 

Pacific Island countries compose at least a vast part of the world’s 

geography as far as sea bed minerals, marine resources. Do you 

think the United States should pay a little more attention to the 

situation there in that region? 

Mr. JOHNSON. Absolutely. 

Mr. FALEOMAVAEGA. Okay. I am sorry, my time is up. Thank you, 

Mr. Chairman. 

Mr. CHABOT. Thank you very much, Mr. Faleomavaega. The gentleman from Calfornia, Mr. Rohrabacher, is recognized for 5 minutes. 

26

Mr. ROHRABACHER. I have often told people who want to invest 

in other countries and do business and then they come to me and 

they want different type of trade agreements that would facilitate 

their commerce in other countries, I always say that I do believe 

in free trade, but I believe that in free trade between free people. 

And that when you have a free trade system with a dictatorship 

or with a country that is run by a clique as we seem to see in 

China that the trade will be manipulated in order to enrich the 

clique. 

And is what we have is a basically a clique in China that is, I 

noticed there is so many more millionaires being created. If you are 

in the clique you have opportunity and freedom, if you are out of 

the clique the system will work against you? Is that what we face 

there in China? 

Mr. CHANG. That is certainly the case that we face in China. 

Just today I heard the story of a U.S. investor, Susan Weinstein, 

whose investment was completely taken away by Shanghai gangsters. So this is the clique at work. 

China’s trade behavior, since it joined the World Trade Organization at the end of 2001, has deteriorated over the last 3 or 4 years 

in very ways that are troubling. Because we were always told that 

China would become a good trader, would become a part of the 

international system, well, in effect, over the last 3 or 4 years it 

has gotten much worse, and so therefore there is a problem. 

And if I may say so, I think that China’s desire, the Communist 

Party’s desire for control, which has manifested itself on these 

antimonopoly investigations, is the same desire for control of Christians and other people of faith in China. 

Mr. ROHRABACHER. I guess you might call this what we are describing as the ultimate crony capitalism, which is, in other words 

some people believe crony capitalism is actually fascism which is 

another way of expressing that. 

If American companies invest overseas, and now we have this example where foreign companies are being targeted for aggressive 

legal action, I don’t think this should surprise these businessmen. 

I mean you go and you invest in a country that does not have an 

independent court system, am I correct in assuming that if there 

is a business disagreement or if the government has something to 

do that the court system is not in any way a fair or free court system there? 

Mr. CHANG. The last thing that I did, Mr. Rohrabacher, practicing law in Shanghai, was involved in a multiyear case as a representative of a foreign bank against a local company. And the odds 

were stacked so much against us it was not a fair fight and, accordingly, we ended up on the short side of the stick. But this experience is just replicated thousands of times a year. 

Mr. ROHRABACHER. Well, we know that China is not only 

condoning but, actually, the government of the clique that runs the 

country is actually participating in the theft of American intellectual property rights and cyberattacks, et cetera. 

American businessmen who have been insisting on a free trade 

approach with this type of country, I hope they don’t come to us 

now pleading with us to help them out. By investing overseas, an 

American company that invests overseas in order to make a 20 perVerDate 0ct 09 2002 16:01 Nov 05, 2014 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 F:\WORK\_AP\091714\89813 SHIRL
27

cent profit rather than investing here and making a 10-percent 

profit have basically betrayed the American people. Working people 

in our country who go to war, pay their taxes, insist on honest government, and those honest citizens here who expect perhaps those 

people with more money in our society to take their well being into 

consideration when making business decisions. 

Well, the fact that those companies have gone over there, they 

are getting their comeuppance and they should have watched out 

for what we Americans hold dear in the first place and they 

wouldn’t be so vulnerable. So I would suggest, Mr. Chairman, that 

we not go out of our way to protect the American companies that 

are now in jeopardy in China. 

Mr. CHABOT. Thank you very much. The gentleman yields back. 

The gentleman also from California, Mr. Bera, is recognized for 5 

minutes. 

Mr. BERA. Thank you, Mr. Chairman. Thanks for calling this incredibly important hearing. From what both the witnesses have described, China clearly is at a crossroads and over the past few 

years it has been at a political crossroads, an economic crossroads. 

Yet, China’s importance to the region in terms of trade with regional partners, Japan, Korea, the Southeast Asian nations, and 

obviously the importance of being a trading partner with us also 

has grown. 

China has to make some decisions now. And I think Mr. Chang 

you touched on one of the leverage points that we have. Because 

of China’s dependence on exports and their dependence on exports 

to the United States, yes, there probably are opportunities for us 

to leverage that reliance on exporting to us. 

So one of my questions, and then one of my thoughts and then 

I would let the comment here, within this committee we have 

looked at North Korea and some of the challenges that we face in 

North Korea and the importance of needing a regional approach 

and China’s importance in leveraging North Korea to become a 

more responsible player in the world. 

How would, just again thinking, through knowing that you have 

written a book on North Korea as well, how we could leverage that 

again China has to be an important partner as we approach North 

Korea, and approach it not as a U.S. versus North Korea, but the 

United States with Japan, with Korea, with China, with Russia, to 

leverage on North Korea? 

Mr. CHANG. Historically, China has had the most influence in 

North Korea, but in recent years, especially the last year, China 

has had less influence in North Korea than us. And so therefore 

I don’t think we need the Chinese to implement our policies toward 

Pyongyang. It is a very much of a change of attitude on the Kim 

regime, but clearly relations between Beijing and Pyongyang have 

broken down. The United States can act on its own in this case. 

Mr. BERA. Should China though be a partner in this at all? Do 

you think they can be a partner? 

Mr. CHANG. We have tried that approach for a decade and didn’t 

work. I don’t know if it is going to work now, especially with the 

problems inside Beijing. 

Mr. BERA. Okay. 

28

Mr. JOHNSON. My personal view is that there is more opportunity with the Chinese than there has been in many, many years 

with regard to North Korea. We have seen that Xi Jinping has 

taken a somewhat different approach. There has been a lot of commentary in air and ink spilled about whether or not China has 

changed its policy. Fundamentally it hasn’t. It is still what keeps 

the North Koreans going on a day-to-day basis. 

But what we do see is, as Gordon just suggested, a sort of fundamental difference of opinion now between the two leaderships. The 

one thing that frankly where roping them in as a partner is an important piece, is that they are very much embarked on a campaign 

now of seeking to peel South Korea off from the alliance with the 

U.S. and Japan. And we saw this most recently with Xi Jinping’s 

visit to South Korea earlier in the year. 

And this is something that we the United States need to be very 

mindful of and think about how we can leverage not only our relationship with South Korea, but also Chinese concerns about North 

Korea to try to manage that process. 

Mr. BERA. If we shift now to some of the tensions that occurring 

based on Chinese actions in the East China Sea and the South 

China Sea and some of the unilaterally provocative moves raising 

tensions between China and Vietnam in very important trading 

routes, and then the same thing with the Senkaku Islands in raising tensions between Japan and China, and then obviously the 

ADIZ unilateral expansions. Again I think all of our regional allies 

are looking for the United States to make sure we are standing 

strong there and sending a very strong message. 

And I would be curious again how we push back. Because again 

if these unilateral decisions that China is making go unchecked, 

they have somewhat of a propensity to continue moving the ball 

down the field. 

So Mr. Johnson? 

Mr. JOHNSON. Yes. It is, in fact, one of the things that is maddening about some of these moves that the Chinese are making is 

that they are very hard to counter in a sophisticated way. One of 

the challenges is that I believe the Chinese have made the assessment that with regard to how to manage these kind of salami-slicing tactics that we have been seeing from them, they understand 

that the U.S. tool kit is actually fairly limited. We have rhetorical 

responses which we have been using, and we have the 7th Fleet. 

And between there is not a whole lot that we can be doing. 

One area though is in the space of improving maritime domain 

awareness for the littoral countries. This is inexpensive from a U.S. 

point of view and also will help create a more common picture and 

understanding of what the Chinese are doing with regard to their 

reclamation of these atolls and so on. 

Mr. BERA. All right. And I think I am out of time. 

Mr. CHABOT. Thank you. The gentleman’s time has expired. The 

gentleman from Arizona, Mr. Salmon, is recognized, who is also the 

subcommittee chairman for the Western Hemisphere. 

Mr. SALMON. Thank you very much. And what is really fascinating is that I do not speak Spanish and I am the chairman over 

the Western Hemisphere. I actually speak Mandarin Chinese, and 

it doesn’t go very far when I go to Mexico. 

29

But anyway this is my second stint in Congress. I was here, in 

fact, Mr. Chabot and I were elected the same term, 1994——

Mr. CHABOT. Twenty years ago. 

Mr. SALMON [continuing]. During the great Contract with America. And I came at a time when every summer we would have a 

debate on Jackson-Vanik and we would be kicking the stuffings out 

of China every July. And I became a very strong advocate of PNTR, 

and I became a very strong advocate of them entering into the 

WTO. 

I was in Seattle at the time a lot of that was happening when 

they were throwing the chairs through the windows, and I was 

there at that time. I had been over to China probably over 40 

times, and many of those visits I have stayed for as long as a couple of months so I know a little bit about China. I couldn’t be more 

profoundly disappointed in the predictions that I made if China 

was to get PNTR as far as being a good trader and our values 

maybe rubbing off on them. 

I remember making the argument, I think the most valuable export that we have to China is not to any of the commodities or 

services but it is our ideals and it is freedom. And I believed at 

that time that a lot of the human rights issues would become better, that religious freedom would improve. 

And I am sad to say that was over a decade ago and it has not. 

And in many ways, Mr. Johnson, you said it is worse, and I agree. 

And I think the aggression has become worse. Now our President 

at the first of this year said that he and his administration would 

make a pivot to Asia. How is that working out? Is the pivot being 

made? 

Mr. JOHNSON. Well, certainly in terms of the rhetorical pieces of 

the pivot we have had some execution, but I can tell you that when 

I travel to the region I am constantly asked by our regional partners and allies, when is it going to materialize? When are we going 

to see some——

Mr. SALMON. That is what I am wondering too. 

Mr. JOHNSON [continuing]. Meat on the bone, if you will——

Mr. SALMON. Yes. 

Mr. JOHNSON [continuing]. With regard to how it works. And as 

I mentioned just a moment ago, things like focusing on building 

this maritime domain awareness net, enhanced intelligence cooperation, for example, with allies and partners in the region, these 

are real things that we can be doing with our partners that we 

aren’t, to make this pivot real. 

I also would just underscore again what both Gordon and I suggested with regard to TPP and the importance of that in terms of 

balancing the rebalance, right? 

Mr. SALMON. Well, right after the President spoke in his State 

of the Union and said that TPA and TPP were extremely important, the majority leader on the other side said, over my dead body. 

And there has been, really, no push from the administration to 

move over that. 

Mr. JOHNSON. Well, this is a fundamental challenge. I mean I 

have yet to see a legislative strategy from the administration——

Mr. SALMON. Exactly. 

Mr. JOHNSON [continuing]. In moving TPP forward. 

30

Mr. SALMON. And it is very, very frustrating. I have a specific 

question. Because when I left in my private life, one of the things 

I did was I became the CEO of a company that was manufacturing 

its product over in China and it actually had patents all over the 

world filed. 

And we had a really interesting phenomenon happen in China, 

and that was that when we filed our patent in China we had some 

bad actor cross file, and then what he did because the courts were 

colluding with him, what he basically wanted was extortion money. 

Buy him off for several million dollars so that he would go away. 

Do you see a lot of that? 

Mr. JOHNSON. Constantly. And this is one area where, the main 

problem in these litigations is that the local court is appointed, 

paid and overseen by the local party, provincial administration. 

And if the key SOE in the province is the one you are up against, 

guess who is going to win the court case? It happens this way every 

time. 

And so this is something where we are watching carefully. They 

will have their plenum here in a couple weeks. The official theme 

is supposed to be Rule By Law, so it will be——

Mr. SALMON. And while the central government has passed some 

very robust laws regarding IP violations, the problem is there is no 

enforcement. 

Mr. JOHNSON. Local enforcement, yes. 

Mr. SALMON. There is no enforcement. And when you get down 

to the provincial levels, they are doing their own thing and they 

don’t answer to the Federal Government, and so, really, nothing 

has really changed. In fact, it is as bad as it has ever been. Is that 

correct? 

Mr. JOHNSON. That is my assessment. 

Mr. SALMON. What would you say, Mr. Chang? 

Mr. CHANG. That is certainly correct. And it is because there is, 

the Chinese central government if it wants to do something it can 

find Falun Gong practitioners in some upland——

Mr. SALMON. Exactly. 

Mr. CHANG [continuing]. Remote place thousands of miles from 

Beijing, but it can’t enforce patent infringements in Beijing. If I 

just may so, I think that American trade has affected the Chinese 

people. The Chinese people now think very much the way we do 

on the issues that you talk about, it is just that the Chinese political system has gone the other way. And so that is, I think, the 

paradox. 

Mr. SALMON. Thank you. I am out of time. Would love to talk 

with you a lot more. It is good stuff. 

Mr. CHANG. Thank you. 

Mr. CHABOT. The gentleman’s time has expired. Is the gentleman 

ready? We are doing a second round and we will start with Mr. 

Sherman. 

Mr. SHERMAN. Only in America would we ignore this enormous 

trade deficit and focus instead on whether the Japanese get a few 

islands, excuse me, rocks that we mischaracterize as islands. 

I don’t know if either of you can answer this. Why is that Germany is able to run a trade surplus with China, whereas we run 

31

the world’s, the largest trade deficit in the history of mammalian 

life? 

Mr. JOHNSON. I am going to largely defer to Gordon on this one, 

but I would simply suggest that it is because the Germans still 

make things. But——

Mr. CHANG. I would like to defer to Mr. Johnson, but since he 

has already started, I think that the most important thing is that 

the United States has become strong by having open markets. 

Mr. SHERMAN. No, the United States has become weak by having 

open markets. You are not in touch with the working and middle 

class families that have been decimated while the grad school educated elite in the country does so well. This has not been a period 

of strength for America. This has been a period of decimation for 

our families. 

So you can continue. 

Mr. CHANG. The problem is that China has become much more 

mercantilist as I mentioned before and trade behavior has deteriorated. And it is a paradox for the United States because it is a very 

difficult problem in that the sense that we do believe in open markets and yet you have a predatory trader. 

And the question is, how do you deal with that one trader while 

still keeping the markets open which we believe to be important? 

And it is, I think, because there has been ineffective enforcement 

on the part of various administrations to Chinese behavior, because 

we have always thought they would get better. But over the last 

3 or 4 years they have gotten worse. And so I think that we need 

to actually start to look at some much more punitive measures to 

make sure that as I said before that we impose costs that are 

greater on them than the benefits that they get by being mercantilists. 

Mr. SHERMAN. Well, I think you misunderstand the gravity of the 

situation. Every year they become another $300 billion richer and 

we lose 2 million to 3 million jobs. 

Japan is happy to have us expand our military spending to defend islets that they hope will have oil which they will not share 

with us. And of course they exaggerate the importance of these. 

What is the Japanese military expenditure as a percentage of their 

GDP? 

Mr. CHANG. One percent, I believe. 

Mr. SHERMAN. I believe it is way less than 1 percent, isn’t it? 

Isn’t 1 percent a ceiling they aspire to? 

Mr. CHANG. You very well may be——

Mr. SHERMAN. So now these same families that have been decimated should pay higher taxes to the Federal Government so that 

we can make sure to have a strong naval presence to defend the 

oil that doesn’t exist which will accrue to a nation that isn’t willing 

to spend its own money. We have decided to be hawks on Japanese 

rocks and doves on trade. This meets the institutional needs of 

Washington and the Pentagon and Wall Street, and obviously is 

part of an overall program that has decimated American working 

families. 

I will yield back in hopes of an interesting second round. 

Mr. CHABOT. Okay, the gentleman yields back. 

32

Let me start with you if I can, Mr. Chang. You had mentioned the $318 billion deficit that we have with China, and I think I 

share a lot of concerns with Mr. Salmon, because we supported, 

what was at that time PNTR, which then became normal trade relations and other things. What can we really do? If you were King, 

what would you do to deal directly with that $318 billion trade deficit that we have with China? 

Mr. CHANG. Well, the one thing that I would do is I would get 

on the phone with Xi Jinping and say that if he didn’t stop XY and 

Z that essentially the U.S. would start inspecting goods at the Port 

of Long Beach. And that way the container ships would be lined 

halfway across the Pacific. 

And I know that some people believe that rigorous inspection of 

Customs is a WTO violation, but nonetheless, these guys play very 

hard and I think that we should play as hard with them as they 

play with us. We have to remember that the Blair-Huntsman Commission talked about a special tariff because of Chinese intellectual 

property violations. And indeed a special tariff, I think, would be 

something that could work in a number of different areas, and so 

therefore it is one of the things that we should look at. 

But as long as we only talk about these things and don’t actually 

impose costs, we will never have any progress with the Chinese on 

trade issues. 

Mr. CHABOT. Thank you. You mentioned that you would say unless he does XY and Z that we are going to do these things. What 

would X or Y or Z be? What are the things that we really ought 

to demand from him? 

Mr. CHANG. Well, I think the thing that is most important would 

be the subsidies that China gives to its manufacturers to give them 

an extraordinary advantage, not only in global markets but in China’s own market of course. The list changes day by day. I mean 1 

year ago we would not have been talking so much about the 

antimonopoly investigations, but now of course they are the topic 

du jour. 

This list is going to change, but the list is comprehensive and we 

could come up in short order with a list of about 30 things that 

need to be done. And I would be happy to do that for the committee 

if they so request. 

Mr. CHABOT. All right, well, thank you. I think we will request 

that. So we appreciate that very much. 

Let me ask both of you this. You suggested one method to mitigate the Chinese offensive against American companies is for companies finding other locations to manufacture their goods, and that 

is going to take some time for that to happen. You referred to it 

as a frontal attack on foreign businesses. At what point do the foreign businesses either realize this or does it no longer become, 

maybe not unprofitable, but not profitable enough to take all this 

grief from China? Are we approaching that point or did they make 

enough money now that they are willing to put up with the garbage that they are putting up with? 

So either one of you or both of you. 

Mr. JOHNSON. I will just offer a couple brief remarks. I think 

that what we can say is that American firms, European firms, 

other firms operating in the country certainly have noticed that the 

33

environment has become much more difficult. I think it is fair to 

say that 5 years ago when firms were considering an investment 

in China, the discussion at the board level was rather simpler. It 

is China, it is huge, we have to be there, go. 

Now I think firms are taking the opportunity to think more deliberately about what might we get out of this particular investment? What type of return might we be able to receive? What will 

we give away both voluntarily and involuntarily through cyber and 

other issues that we worry about? And are we in an industry that 

it would actually make sense for us to be operating in this current 

China landscape that they face? 

Mr. CHABOT. Thank you. Let me ask you this, Mr. Chang, because I have only 1 minute to go. You mentioned when the Chinese 

Government pulled these 20 American corporations, I think? 

Mr. CHANG. There were 30, and they were mostly American but 

there were others as well. 

Mr. CHABOT. All right. So could you tell us a little more about 

that? What happened, where was it at and what were they demanding of these people? 

Mr. CHANG. There were two series of meetings. There was one 

set of meetings for Chinese companies. There was another set of 

meetings for foreign companies. Both sets of meetings were conducted in Chinese so there was no need to have two sets of meetings. And, essentially, over 2 days, what the NDRC, the National 

Development and Reform Commission, did was wanting to force 

them to write confessions and essentially to agree to fines for violations of the antimonopoly law, and companies of course resisted. 

To answer your other point, foreign direct investment is starting 

to fall in China. In July it was down 17.0 percent. I forget the figure for August. But it is not only the falls in July and August, but 

also for 2014 as a whole FDI is down. This is the first time this 

has occurred since China joined the WTO in 2001. 

Mr. CHABOT. I am out of time, but do the Chinese realize that 

this could have the opposite effect that they desire? That they may 

end up shooting themselves in the foot? 

Mr. CHANG. I think they do realize that, but I also think that 

they can’t do very much about it because of Chinese state-owned 

enterprises being too powerful within the Chinese system. And so 

I think senior leaders, like Li Keqiang, the Premier of China, can 

talk about this issue but there is very little he can actually do 

about it. 

Mr. CHABOT. Thank you very much. My time has expired. Mr. 

Faleomavaega is recognized for 5 minutes. 

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. I am trying to 

think in terms of some of the questions and issues that were raised 

in our hearing this afternoon. It took American democracy over 200 

years to develop where we are now, and I was wondering that 

there is an American Indian saying, walk in a man’s moccasins before you make judgment. 

China has 1.5 billion people. It is one of the two most populous 

nations in the world. And even India, if you talk about it, there are 

tremendous opportunities as well as responsibility. How do you go 

about in getting a system of government that will address the 

means or the issues of some 1.5 billion people, not million, billion? 

34

And I want to raise this issue with both of you gentlemen. If you 

were in the President of China’s seat, what would you be doing or 

saying to provide, to feed 1.5 billion people? Now I know that it 

seems that our whole interest it seems to be emphasized on strategic and military, but what about considering the social issues 

that the Chinese people and their leaders have to confront? What 

do they have to do in order to survive? 

It is very easy for us because we are the most powerful, we have 

the biggest economy in all of this, but it took us 200 years to get 

where we are now. So I would be happy to hear your comments on 

that concern. 

Mr. CHANG. Well, China took 5,000 years and is still working at 

it. If I were Xi Jinping, I would think that the Communist Party 

system has basically run to its limits. It is very much, it cannot 

really progress very much further within the authoritarian system. 

And I would open it up for elections. I would have very much fewer 

regulations on business. I would get the state of business by 

privatizing state-owned enterprises. 

But fortunately or unfortunately I am not the leader of China, 

and he is absolutely resistant to all the things that I just talked 

about. 

Mr. JOHNSON. I would simply add that this is probably the core 

challenge that the Communist Party leadership faces going forward. You have a very stovepiped and rickety Leninist system 

riding atop one of the world’s most dynamic countries and whether 

or not the Party leadership can reinvent themselves in some way. 

And I really think it speaks very much to what Mr. Chang just 

said with regard to we are not going to see the type of reform and 

progress we want to see until the Party is able to step back from 

the economy, and so far that is just something they have not been 

willing to do. 

Mr. FALEOMAVAEGA. How would you then compare the socioeconomic interests of the Soviet Union, or what we now call Russia, 

in terms of the development that they have taken? Is it more a free 

market oriented or are they still having problems with Lenin and 

the ideologies involved in that? 

Mr. JOHNSON. They don’t have troubles with Lenin, they have 

troubles with mafias. It is an even more crony capitalistic system 

than that you might see in China. 

Mr. FALEOMAVAEGA. Mr. Chang? 

Mr. CHANG. What we see in both places was the Soviet Union 

looked to be more vibrant than it actually was. I think China is 

less vibrant than it appears to be. China’s problem right now is 

that it has run up enormous amounts of debt. It has put in enormous amounts of stimulus since the end of 2008 to avoid the effects 

of the global downturn. And so it does have critical threats to its 

economy, but they are very different than the ones that faced the 

Soviet Union at the end. 

So essentially you have a political system that is dominating the 

economy that is not allowing the actors in the economy to do what 

is absolutely necessary to create sustainable prosperity. 

Mr. FALEOMAVAEGA. Two of the most populous nations in the 

world are side by side, and I am talking about India and China. 

And there seems to be a development ongoing in trying to figure 

35

how they can provide programs that will naturally benefit them 

economically. Do you think the United States should have a policy 

in promoting better economic relations with China as well? 

Mr. CHANG. I think that we should have a policy which is much 

more focused on India. It is a democracy. We share values with 

them. We also face a belligerence of China and so we do face common threats. But I think the most important thing is values and 

then that will create a stable relationship. The United States has 

not had a stable relationship with a large authoritarian nation 

ever, and I don’t think that what we are trying to do now is capable of success. 

Mr. FALEOMAVAEGA. Mr. Johnson? 

Mr. JOHNSON. I would note that what is interesting, especially 

with now that Mr. Modi is in as Prime Minister of India, certainly, 

and has a track record of holding very strong and negative views 

about China, but yet we see that the two leaderships are trying to 

court each other in this early process. 

I would simply emphasize that for the United States, the main 

thing for us to remember is India will never agree to be part of 

some sort of pincer movement to surround China. The economic relationship is too strong. And so we have to be mindful of the limits 

of how we might be able to——

Mr. FALEOMAVAEGA. Thank you, Mr. Chairman. 

Mr. CHABOT. The gentleman’s time has expired. The gentleman 

from Virginia, Mr. Connolly, is recognized for 5 minutes. 

Mr. CONNOLLY. Thank you, Mr. Chairman, and I have an opening statement I would ask be entered in the record. 

Mr. CHABOT. Without objection, so ordered. 

Mr. CONNOLLY. I thank the chair. 

Mr. Chang, I would like to pick up on something that just intrigued me the way you put it. That China’s Communist system, 

Communist political apparatus, has maybe kind of run the clock. 

I mean it is time out. It is over. I wonder if you could go into that 

just a little bit more, because two things strike me about China. 

One is, there is a sense, almost an obsessive sense of the need for 

order, and order historically flows from Beijing. And they have 

good reason given just 20th century history why one might abhor 

the opposite of order, the chaos of revolution and individual militias and of course the Japanese occupation and then the virtual 

civil war between the Kuomintang and the Communists led by 

Mao. 

So does that, if I am right about almost, well, an obsessive concern about order given their history, does that not give the Communist Party some more rationale on staying power than otherwise 

might exist in other countries where Communism, in fact, govern? 

Mr. CHANG. I think that a desire for order gives a government 

strength, but only up to a point and they have passed that point. 

What is important right now is that the Communist Party no 

longer inspires the Chinese people, and the increasing expenditure 

on internal security, I think, is a symptom of decline. 

The other reason why the Chinese Communist Party has run out 

the clock is essentially economic. What they have done is they have 

created massive amounts of debt, perhaps as much as between 15 

to 30 percent a year increase in debt over the last 5 years, and they 

36

have not been able to create growth that is sufficient to pay back 

that debt. 

So China is on the edge of a debt crisis, plus also a property 

meltdown which is what we are seeing at this present moment as 

property markets across the country decline. So essentially the 

problem is fundamentally economic, but it underlines a political 

problem of not being able to inspire the Chinese people. 

Mr. CONNOLLY. Did you want to comment? You were shaking 

your head, Mr. Johnson. 

Mr. JOHNSON. I take a somewhat different view. My own view is 

that the Communist Party in China has proven itself to be a very 

flexible and resilient entity. And that while they do face a lot of 

these challenges, one thing that distinguishes them from some of 

the other Communist systems, especially the Soviet Union, that 

have existed is that they are far more aware about the problems 

going on inside the country than their Soviet counterpart was. 

They are far more aware of that. 

And we see them historically being willing to take very pragmatic steps to keep the wheel turning. I do think there is a question under whether this new leadership under Xi Jinping where he 

has really emphasized control and almost a sort of looking back toward an earlier era of ideological indoctrination, whether or not 

that is the right course for them to be taking. 

Mr. CONNOLLY. But I think implicit in Mr. Chang’s observation 

is the fact that perhaps in a high tech, knowledge based economy 

you have got to have unclad, unfettered ideas, unfettered expression of ideas, unfettered exchange of ideas. 

Mr. JOHNSON. Correct. 

Mr. CONNOLLY. And that is antithetical to any authoritarian system, especially a Communist system. And so buried in his comment, I think, is a prediction that even if you don’t agree that the 

Communist system is rickety, corrupt and lacking in legitimacy, increasingly, nonetheless the driver of a contemporary economy is 

just running headlong into that structure and one or the other has 

to give. 

Mr. JOHNSON. Yes. Precisely so. I mean this is one of the challenges they are facing now, right, is their problem with innovation. 

And I would like to remind Chinese friends that for 5,000 years of 

their history they didn’t have a problem with innovation and then 

the Communist Party took over and suddenly they have had some 

difficulty with it. 

Unfortunately the practical ramification of that, I would argue, 

is that they know that in order to solve a lot of the problems that 

Mr. Chang has referenced in their economy, they do need to move 

up that value chain much faster than they previously had assessed. 

Given the challenges that that system, the restraints that it puts 

on innovation, unfortunately for things like cyber, I think it sends 

all of the incentives in the wrong direction and we should plan on 

seeing it increase. 

Mr. CONNOLLY. Yes, good point. Mr. Chang, I invoked your name 

and characterized your comment. Did you just want to add to that 

in terms of the knowledge based economy? 

Mr. CHANG. The problem is that manufacturing is becoming more 

expensive in China. They are losing low end manufacturing but 

37

they are not able to move up the value chain fast enough to replace 

what they have lost. And that is going to be the critical dynamic 

in China’s economy going forward. 

Mr. CONNOLLY. Thank you. Thank you both. Thank you Mr. 

Chairman. 

Mr. CHABOT. Thank you. The gentleman’s time is expired. The 

gentleman from Georgia, Mr. Collins, is recognized for 5 minutes. 

Mr. COLLINS. Thank you, Mr. Chairman. I am not sure what is 

going on today. It is just a privilege for me to be following my 

friend from Virginia everywhere, but let him know that I am following him as we go. It is good to be—he can take that and he will 

understand as it goes, and we have had a good time. 

This is a concern, and I agree, I am glad of the hearing here, Mr. 

Chairman, and I appreciate you calling it. As recently returned 

from China and speaking to, dealing especially from my position in 

judiciary and intellectual property and intellectual property courts, 

we had a lot of good discussions with the intermediate courts in 

speaking in different areas. 

What was amazing to me was is while we were there dealing 

with antitrust and dealing with these kind of, the monopolistic provisions, all across the front page of the very, I guess, fairly stated 

propagandistic China Daily, today was the issue of they are going 

after Mercedes Benz and others and after market parts. 

The interesting part was is they were not really attacking, in all 

fairness, the status of what they have and their market share, 

what they were trying to do is negotiate price. And this is where, 

I think, we have got to come back. Because just in a matter of a 

few days, the companies all lower their prices and is amazingly 

how it all goes away. So you can’t have a monopolistic or antitrust 

violation that goes away with a price decrease. If that would be, 

then you would have a lot of different issues in this here. 

I think the interesting thing that I love to hear is companies in 

the competition clauses and other things, and then we can get into 

trademarks. There is so much from a rich environment here and 

a judiciary aspect that is costing our companies in—what I thought 

was very interesting was to hearing from some of them that 

Wallway and several others were actually moving facilities out of 

China because they were concerned about their own intellectual 

properties being taken to other companies and stolen with inside 

the country, so they were actually moving them off on a quasistate-owned basis. 

So how do we encourage China? And I know probably some of it 

has been discussed here. This was the part that came across very 

clear in discussion with the businesses but also with the business 

community, American business, foreign business community in 

China and also with the Chinese themselves and the government. 

How do we encourage a sped up growth rate, if you would, to be 

understanding of intellectual property in an international understanding, not just a nationalistic understanding? It is amazing 

their intellectual property courts are flooded with their own cases. 

There are very few, actually, from foreign companies. 

So I want us a little open ended here for a moment. How do we 

encourage them to do that in a productive way? How do we encourage them to be a part of this process and give our companies the 

38

assurances that when they do go, because they do want to invest 

over here. We want to have reciprocal investment. How do we do 

that? 

Mr. CHANG. I think that we have tried to do that over the course 

of about three decades, and virtually everything that we have done 

has failed. So I don’t think that you can do that in a nice way. And 

as I said, we have to start imposing costs on China because that 

is the one thing that they do understand. 

So unfortunately the engagement process just has seriously 

failed, and we are seeing that day after day with so many problems 

not only in the intellectual property area but in the antimonopoly 

and other areas as well. 

Mr. COLLINS. And one of the issues here, I think, that you get 

into and this is one that we are switching, same gear, is their exchange rate, their monetary system, this is another issue. And just 

recently if you were just looking, their growth rate is cooling off 

and they are having trouble sustaining this stimulus based growth 

and they have actually done a little bit of movement in how they 

are handling it. 

But there are many of us who look at this area in China and 

think that this is not just a short term problem, when you look at 

their growth, you look at the empty rates in buildings, these kind 

of things. Where do you see the next step for them going knowing 

that they are not going to hit their mark at least realistically but 

they may artificially try to, how through exchange, through other 

things, what do you see? Crystal ball it for just a second. What do 

you see them doing next? 

Mr. CHANG. They don’t have any solutions. What they did was 

they poured a massive amount of stimulus into the Chinese economy beginning at the end of 2008. It created growth at first, but 

now it has created a debt which they can’t pay back. They are 

probably growing now at about 2 percent when you look at independent data, corporate profit results and even official numbers. 

So I think they have run out of answers and they know that. And 

the reason we can see it is that they can’t do anything and they 

haven’t done anything in the last year or so. So they are stuck. 

Mr. COLLINS. Well, and I think, and not to, inside anything in 

this, but I think it is also to me looking at it, I think, from a very 

positive, from a market standpoint, from an American, how we can 

have a positive relationship here. And as long as we don’t turn to 

a nationalistic interest, which is definitely a concern here, rally the 

troops, we will go after the Straits, we will do those kind of things, 

is in looking at how we can continue to have the process of them 

investing here and we investing in their, and having that mutual 

exchange where you have a southern part, the Hong Kong, 

Shenzhen, Guangzhou, those areas down there, the Guangdong 

province that have basically become a more Western economy and 

with all that is good and bad about that. 

And I think that is going to be an interesting, would be a great 

time as we continue these hearings, Mr. Chairman. I appreciate 

your leadership. I appreciate you all being here. We could go for 

a lot of time but I appreciate your answers. 

Thank you. Mr. Chairman, I yield back. 

39

Mr. CHABOT. Thank you very much. The gentleman’s time is expired and we will conclude with the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. I would like to explore the political vulnerability 

of the Chinese Government. This is a government which over the 

last 50 years has provided more economic growth than just about 

any in world history. They have now turned to nationalism to justify their position. Our institutions in the United States survived 

the Depression, the Great Recession. 

Mr. Johnson, can Beijing survive a recession of the level we 

placed in 2008 or even the depression that Roosevelt guided us 

through in the 1930s? 

Mr. JOHNSON. I think it is an open question. Certainly what is 

clear is that they managed to survive the global financial crisis better than a lot of others, but as Mr. Chang said, with serious unintended consequences with regard to their response, and it does 

speak to the central element which is the state driven system. 

They poured all this stimulus toward the state banks which gave 

it to inefficient state-owned enterprises and now they are buried by 

this level of debt. 

I think what we need to see is can the reform program that was 

tabled at the Party plenum last fall actually be implemented? If it 

is successful that may be one way that they can deal with such 

problems going forward and make their system more resilient. 

Mr. SHERMAN. Mr. Chang, if this government does lose power, 

will it just peacefully cede power to a different system? Pull a 

Gorbachev, shrug your shoulders, walk off the world stage? Or will 

they use the People’s Liberation Army and perhaps even their nuclear weapons in an effort to hold onto their system? 

Mr. CHANG. I think that when China goes, and it will go fairly 

soon, it will be pretty ugly. You have got to remember that the Chinese Communist Party——

Mr. SHERMAN. Nuclear ugly or one step less than that? 

Mr. CHANG. Ugly with regard to its own people. And what we 

could also see is China doing——

Mr. SHERMAN. And you are assuming they would not use nuclear 

weapons against their own people? 

Mr. CHANG. Actually, they have threatened to do that because 

they threatened to nuke Taiwan which they believe is their 34th 

province. But apart from that, what we have seen China recently 

do is lash out. Not only against its neighbors, not only against the 

United States, but basically against everybody, and that does not 

make strategic sense. But it is an understandable tactic for leaders 

who are in trouble. 

Mr. SHERMAN. It is the last refuge of every tyrant. If you can’t 

deliver you can at least deliver impassioned nationalistic speeches. 

You talked about a number of steps we could take on the trade 

front. Why wouldn’t we designate them a currency manipulator except for the argument that they are manipulating their currency a 

little less now than they used to? Are they not still a currency manipulator and why have we not designated them as such? 

Mr. CHANG. They still are, because almost every trading day the 

People’s Bank of China is in the market influencing the Dollar/

Renminbi exchange rate. And under U.S. law we have a requireVerDate 0ct 09 2002 16:01 Nov 05, 2014 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 F:\WORK\_AP\091714\89813 SHIRL
40

ment to designate a country as a manipulator if it, in fact, manipulates its currency which China does, and it does so for a predatory 

trade purpose. 

Wen Jiabao, who was Premier of China in 2008 or so, came to 

New York and basically said that they were manipulating their 

currency to keep their workers employed. And that is the definition 

of a predatory——

Mr. SHERMAN. I wish we cared as much about our workers. But 

go on. 

Mr. CHANG. So we have an obligation under U.S. law to designate them a manipulator. That doesn’t mean we have to do anything about it, but we should respect our own law. Because when 

the Chinese see that we don’t respect our own law——

Mr. SHERMAN. You forgot the provisional law that says if Wall 

Street finds it inconvenient then it doesn’t work. 

Mr. Johnson, do you agree? 

Mr. JOHNSON. I don’t have anything to add to what Mr. Chang 

said. 

Mr. SHERMAN. Okay. We have got a Foreign Corrupt Practices 

Act. It penalizes American companies that bribe Chinese officials. 

Presumably, this is for the benefit of the Chinese system. Does our 

enforcement of the Foreign Corrupt Practices Act with regard to 

U.S. companies doing business in China hurt us economically? 

Does it hurt or help us in other ways? 

Mr. CHANG. I will let Mr. Johnson answer that question. 

Mr. JOHNSON. No, I don’t think it does hurt us economically. I 

mean this is how we project our values abroad. So I am a firm proponent of enforcement of the FCPA. 

Mr. SHERMAN. Even with regard to protecting a regime from the 

corruption of corruption when we don’t actually wish that regime 

well, at least many of us don’t. 

Mr. JOHNSON. Well, I don’t think we would, even if that is true 

I don’t think we would want our businesses engaging in corruption 

to help hasten its end if that is what you are suggesting. 

Mr. SHERMAN. Undermine, I think, is a better phrase than hasten its end. Mr. Chang, do you have any different view? 

Mr. CHANG. Long term, I absolutely agree with Mr. Johnson. 

Short term, you are right. On the short term, if we allowed U.S. 

companies to go bribe Chinese companies they would do very well. 

But long term that does hurt U.S. business not just in China but 

around the world. We learned that with the behavior of U.S. companies in Japan. I don’t recommend it. 

Mr. SHERMAN. I am looking for everything that might work. I 

yield back. 

Mr. CHABOT. The gentleman’s time has expired. I think this was 

a particularly good panel that we had here this afternoon, a good 

discussion, and thank you very much for enlightening us on a 

whole range of issues relative to our relationship with China. Members will have 5 days to supplement their statements or submit 

questions in writing. And if there is no further business to come 

before the committee, we are adjourned. Thank you very much. 

[Whereupon, at 3:44 p.m., the subcommittee was adjourned.] 

(41)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE RECORD

42

f


89813n.eps
43

f


89813m.eps
44


89813c-1.eps
45

Æ


89813c-2.eps